Pub. 12 2013-2014 Issue 2

N e w J e r s e y C o a l i t i o n O f A u t o m o t i v e R e t a i l e r s 31 new jersey auto retailer w w w . n j c a r . o r g In the wake of the recession, dealerships saw an increase in the number of fraud cases. One theory is that, as dealerships tightened their belts, they began looking very closely at income and expenses. This increased scrutiny may have brought irregularities to light. Fraud can occur within the books and records, or outside the records, which is harder to find. The most serious examples of fraud often oc- cur at the highest levels of management, due to the access and control these individuals have over their environment. Theft of cash and purchasing schemes, such as kickbacks, comprise the majority of the frauds. In situa- tions where a significant portion of the indi- vidual’s income is represented by bonuses or other incentives, a dealership is opening itself up to the potential for fraudulent behavior. Unrealistic forecasts can also cause manage- ment to report fraudulent results. The three main factors of fraud are motive, opportunity and a lack of integrity or ratio- nalization. If any of these factors are present at your dealership the greater the chance that the dealership can fall victim to fraud. Detecting fraud is always difficult. Most fraud is found by tips and complaints by other employees. Even an internal auditor cannot guarantee they’ll be able to detect fraudulent activity. Generally accepted auditing stan- dards, also, are not designed to detect fraud. An annual audit of your financial statement is designed to detect material misstatements and does not guarantee that your dealership is free of fraud. It is a commonmisconception among dealers that an annual audit of the financial statements will detect fraud. There are several things a dealership can do to minimize the potential for fraud within their business. Communicate the dealer- ship’s values and ethics to all personnel and consistently support those values. Install ap- fraud  continued on page 32 Minimize Fraud At The Dealership By Larry A. Weiner, CPA How To Use proper internal financial reporting, have good internal controls based on what you can afford, be diligent, analyze your results, look for irregularities, and seek advice from someone who understands the financial workings of your business.